Analysts believe that the hedge funds are still bearish about gold because market sentiment for gold is sensitive to the growing likelihood that the Federal Reserve will stick to its current aggressive monetary tightening. Such expectations of further rate hikes until the end of 2022 and in the first quarter of 2023 hold the US dollar at the strongest levels of the last 20 years. Besides, yields of US Treasuries are hovering above 3% which is a serious obstacle to the rally in the precious metals market.
According to CME FedWatch Tool, the market foresees a 74% chance that the Federal Reserve will increase the official funds rate by another 75 basis points later this month.
Commodity analysts from TD Securities note that a weak dynamic of gold prices during the summer indicates that the market had already priced in high interest rates. Experts say that another sell-off will be triggered by expectations that the Fed will soften its stance later than initially predicted.
The CFTC's weekly COT (Commitment of Traders) report showed that money managers reduced their speculative long positions in Comex gold futures by 4,089 contracts to 91,761. At the same time, short positions rose by 6,234 contracts to 79,973.
The net long positions for gold are now measured at 11,788 contracts, 46% less than a week ago. Since last week, the gold price has got stuck at around support of slightly above $1,700 per troy ounce.
Commodity analysts at Societe Generale say that the whole market of precious metals has been hurt by the bears. As a result, the market has shrunk by $2.5 billion.
No matter what pessimistic sentiment is ruling the gold market, the bears have delivered a worse punch to silver. Hedged funds are increasing bearish bets on silver.
According to the latest COT report, market makers cut long positions on silver futures by 564 contracts to 31,139 on Comex last week, whereas short positions rose by 4,643 contracts to 52,170. Analysts confirm that long positions on silver have dropped to the lowest level since November 18, thus proving minor investment interest in this precious metal.
All in all, net positions on silver are measured at 21,031 contracts which means growth of nearly 33%. Market sentiment is turning sour because silver prices have recently dipped below $18 per troy ounce.
Some analysts reckon that mounting recession fears are still exerting pressure the silver price because industrial production accounts for 60% of demand.
Recession worries also affect the copper market. In fact, hedge funds are terminating their bullish bets on copper.
The COT report revealed that speculative long positions on quality copper contracted by 3,126 to 37,617. At the same time, short positions increased by only 63 contracts to 46,284. The overall market sentiment in the copper market remains firmly bearish with net new short positions at 8,667 contracts.